Gold's Death Cross Hastens Mining ETFs' Downward Spirals

The big news out of gold pits Wednesday is that futures violated the psychologically significant $1,600 per ounce level.

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Editor's Note: This content was originally published on Benzinga.com by The ETF Professor, Benzinga Staff Writer.

The big news out of the gold pits Wednesday is that futures violated the psychologically important $1,600 per ounce level. At the time of this writing, Comex-traded gold is trading just under $1,568 per ounce. Arguably, the bigger news is the technical condition that gold's slide has caused.

That is the ominous death cross, the technical scenario under which a security's 50-day moving average falls below its 200-day line. It happened with gold futures and it would appear that it is just a matter of time before the same fate befalls the SPDR Gold Shares (NYSEARCA:GLD) and the iShares Gold Trust (NYSEARCA:IAU).

Not surprisingly, gold trading is at six-month lows and violating key technical areas has proven to be another nail in the coffin of gold mining ETFs. Earlier this month, our firm reported on looming technical issues for the Market Vectors Gold Miners ETF (NYSEARCA:GDX).

That report cited a technical analyst that said if GDX, the largest gold miners ETF by assets, fellow below $42.15, the bad times could keep on coming. As of Wednesday, that call has proven to be 100% accurate. GDX is off 4% in late trading and trading around $37.80. Should GDX closed below $38 today, it will be the first time the ETF has done that since July 2009.

GDX's all-time low of $17.80 seen in October 2008 is obviously a long way off, but at around $38, the ETF is trading near a price that it saw soon after its May 2006 debut. Regarding the death cross, GDX beat bullion to the punch, having committed that offense early this year.

GDX is not alone. The Market Vectors Junior Gold Miners ETF (NYSEARCA:GDXJ) is off 3.8% today and is trading at $16 as of this writing. That would be a new all-time closing low for the ETF, which debuted in November 2009. If GDXJ closes right at $16, it will have lost 38.4% since coming to market.

Like GDX, GDXJ made its death cross several weeks. Weakness in gold mining shares, a prominent theme for two years now, if not longer, and that weakness can be felt at the highest levels of the hedge fund universe. As our firm reported last week, George Soros has been paring his exposure to GDX and GDXJ.

Investors in David Einhorn's Greenlight Capital may be hoping that the hedge fund is behind some of today's selling pressure in GDX. Greenlight owned about 6 million shares of GDX at the end of the fourth quarter, according to a recent 13F filing. That position, if Greenlight still maintains it, is certainly worth less today than it was at the end of last year. GDX spent much of October and November trading in the high $40s and low $50s before diving to the mid $40s in December.

Not surprisingly, today's worst offender in the gold mining ETF realm is a leveraged play: the Direxion Daily Gold Miners Bull 3X Shares (NYSEARCA:NUGT). Down over 10% today and more than 34% in the past month, NUGT languishes below $6 per share. In the world of leveraged ETFs, a fund with that price tag will only keep it for so long before it travels down Reverse Split Boulevard.

The Direxion Daily Gold Miners Bear Shares (NYSEARCA:DUST) will not be seeing a reverse split anytime soon. DUST, the one gold mining ETF that is worth a look these days, is up 51.5% in the past month and that does NOT include today's 12.1% gain.

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